Rupert Murdoch's News Corporation last night announced that it was suing two of the firms in Silvio Berlusconi's media empire, accusing them of refusing to let satellite broadcaster Sky Italia advertise on the Italian prime minister's terrestrial network.

The lawsuit marked the latest stage in the deterioration of relations between the two media moguls, once regarded as potential partners.

A statement issued by News Corp in London late yesterday said that its wholly-owned Italian subsidiary, Sky Italia, had filed an action in Milan, where Berlusconi's Mediaset group is based. Sky Italia is one of the News Corp businesses overseen by James Murdoch, Rupert's son, the London-based chairman and chief executive of the company's operations in Europe and Asia.

The News Corp statement said Murdoch's group would be claiming that RTI and Publitalia - respectively the television and advertising arms of Mediaset - were guilty of unfair competition under Italian law and had violated the European Union's anti-trust rules.

There was no immediate comment from Mediaset, whose share price was hit by the news. The Italian company's shares fell from highs after the announcement, but still closed 1.7% per at €4.84.

Sky Italia has presented a growing threat to Silvio Berlusconi's dominance of his country's television market. The group controlled by the Italian prime minister's family owns three of the seven main terrestrial channels in Italy, while three more belong to the public broadcasting network, RAI, which is answerable to Berlusconi's rightwing government.

Murdoch's satellite broadcaster Sky Italia dominates the Italian pay-TV sector, with almost five million subscribers and a market share of around 90%. Mediaset's rival operation has only about 5% of the pay-TV market.

In July, in a move seen as aimed at isolating Sky Italia, Mediaset joined RAI and the seventh terrestrial channel, La7, in launching a low-cost digital satellite platform.

• To contact the MediaGuardian news desk email editor@mediatheguardian.com or phone 020 3353 3857. For all other inquiries please call the main Guardian switchboard on 020 3353 2000.

• If you are writing a comment for publication, please mark clearly "for publication".